Author(s): Raghu Gopal
Last week, Reliance Jio chairman, Mukesh Ambani, announced that the operator has crossed the 100 million subscriber mark in less than six months of its launch. This week, at Mobile World Congress, Jio revealed its bold ambition to become the fifth largest operator globally. CCS Insight had predicted in 2016 that the launch of Jio would be a game changer in the Indian telecom market, but this pace of customer additions is still striking (see A Little Bundle of Jio).
There's an easy explanation to this level of success: unsustainable pricing. Jio, an LTE-only operator, has been offering most of its services for free. This includes an offer of free voice services for life. Such keen promotions have been taking the steam out of the market's incumbent competitors.
Although Jio has managed to disrupt the Indian telecom industry with its generous Welcome and Happy New Year offers of free data and voice, the complimentary access will soon come to an end. Unsurprisingly, Mr Ambani announced that the operator would begin charging customers for its services. Beginning 1 April 2017, the days of free will be over.
Nevertheless, Jio will continue to offer incredibly appealing deals. Customers who sign up for the Jio Prime Membership programme at a one-time cost of 99 rupees (about $1.50) can continue to get 1GB of LTE data per day at a cost of 303 rupees (about $4.50) per month.
Since Jio's market entry in 2016, rivals have paid a heavy price for not doing enough to retain their high-end customers. Instead, they focused on holding on to prepaid users by offering discounts.
The monthly average revenue per user for India's high-end subscribers ranges from 700 to 1,000 rupees ($10.50 to $15.00, approximately), significantly above the country's aggregate ARPU of $2.30. Given that Jio has now set prices at less than 50 percent of the market average for rich data plans, rivals Bharti Airtel, Vodafone India and Idea Cellular find themselves in a precarious position, potentially being forced to cut prices for their premium data packages. Jio's offer providing 30GB of 4G data with unlimited voice for about $4.50 is very tempting for LTE users in India's urban areas.
One outcome seems inevitable: India's telecom market is in for a continued price-war. This will benefit consumers in the short run, but the effect it will have on operators' cash flow could affect the roll-out and expansion of 4G services across the country. Looking at some operators' results: shortly after Jio launched its commercial 4G services Bharti Airtel's profit plunged more than 50 percent, Vodafone India's service revenue fell 2 percent year-on-year, and Idea Cellular posted its first loss since going public in 2007. Rivals are now looking to consolidate, with Telenor already exiting the market. Vodafone made a €5 billion write-down associated to India in November 2016, further highlighting Jio's impact on the Indian telecom sector.
Jio has reached 100 million subscribers faster than any operator has and is backed by Reliance Industries, one of the largest conglomerates in India with several cash cows across an array of sectors. This is a company that can wait it out.